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E*TRADE Faces Lawsuit over February Outages

E*TRADE Group Inc. has been hit by a fraud and breach of contract lawsuit from a woman who claims that the company's lack of "safe, reliable, fast" service cost her $40,000.

The lawsuit alleges that the company promoted "false and deceptive advertising about its capabilities." Truc Hoang claims that site crashes interrupted separate cancel orders on Feb. 2 and Feb. 4, a processing failure which inspired the lawsuit.

Hoang says that E*TRADE knew that its system was technologically inadequate to manage the volume of users, but did not take measures to ensure the stability of the site.

"E*TRADE does not have and has not had the system capacity to adequately support its accounts," the lawsuit states. "Its systems can only support a small percentage of its accounts at any given time."

E*TRADE (EGRP) has filed a motion to have the class-action case dismissed.

"We're bombarded daily with hyberbole, and I think it's reasonable not to construe that as fraud in an advertisement context," said Haong's lawyer, David Webster.

"But when E*TRADE says that their trading service is reliable, convenient, fast and efficient, and that trades could typically be executed and electronically confirmed within seconds, that its systems are state of the art and that it has superior technology, and that its customers can place orders via the Internet or telephone 24 hours a day that's not puffery," he said. "That's something we believe they are obligated to back up."

Online brokerage Schwab experienced its own smattering of outages last week, but extended after hours trading as an olive branch to angered traders.

The outages are damaging to the companies' finances as well, with Hoang estimating a $20 million loss for E*TRADE's crash and eBay tagging its 22-hour July outage as a $3 to $5 billion snafu. Each stock plummeted on news of the problems.



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